Selling a Commercial Cleaning Company

The contract book comes first

Before anything else a buyer asks for the account list. Each line shows the building, the cleaning scope, how often the crew comes, the monthly billing, the start date, the term and the notice either side must give to end it. Many janitorial agreements can be cancelled on short notice, so a buyer reads the termination language closely and gives more credit to accounts with a signed term and an automatic renewal than to accounts that run on a handshake and a purchase order.

Retention is the next question. How long has each account been with you, which ones left in the last few years, and what did the building manager say on the way out. A company that lost three buildings to a cheaper bid will be asked about price. A company that lost them because a property sold has an easier answer.

Concentration matters as much here as in any trade. If one property management company controls a large share of your buildings, a buyer treats that company as the customer, and a change of leadership there can move a lot of revenue at once. Our post on customer concentration explains how buyers think about it.

Bids, and what each building earns

Janitorial bids are built from labor hours per visit, the wage, payroll costs, supplies, equipment wear and supervision. Buyers will rebuild that math for your larger accounts. They are looking for buildings that were priced low to win the work and never repriced while wages went up. An account that looks healthy on revenue can be losing money once the crew hours are charged against it, and a buyer who finds that in diligence usually asks for a lower price.

Periodic work lifts the numbers. Floor stripping and waxing, carpet extraction, window cleaning, post-construction cleanups and medical-office cleaning carry better margin than nightly trash and vacuuming, and they are billed on top of the base contract. A buyer will want to see how much of your revenue comes from that kind of work and whether the crews doing it are trained or borrowed from the nightly route. Our recurring revenue post covers why steady monthly billing is worth more to a buyer than one-time jobs.

Night crews, supervisors and keys

The crew is large, paid hourly and often part time, and buyers expect turnover. They look at how it is managed. Who recruits, who trains, who covers when someone calls out at five in the afternoon. In many companies the answer is the owner, who goes to a building with a vacuum when the shift is short. A buyer sees that as a person who cannot be replaced by hiring one more cleaner.

The supervisor or area manager is the person a buyer cares about most. That person walks the buildings, checks the work, handles the six in the morning call from an angry tenant and holds the keys and alarm codes. If the company has two or three of them with years of tenure, the business can run without you. If the owner does those walks personally, expect the price to reflect it. Our post on owner dependency describes how to move that work to someone else before you list.

Buyers also ask how the crew is paid and classified. Some cleaning companies use subcontracted crew leaders or individual contractors, and a buyer's attorney will look at that carefully. Rules vary by state, so have your own attorney confirm that the arrangement holds up before a buyer asks.

Building managers hold the relationship

In this trade the customer is a person, usually a building manager, facilities director or office manager, and those people change jobs. A buyer wants to know who in your company has the relationship with each of them. If it is you, the transition plan has to include introductions, ride-alongs and some time after the sale when you stay available. If it sits with your account managers, the buyer relaxes.

Buyers also read the quality records. Inspection scores, complaint logs, response times to a missed trash pickup, and any account that required a corrective notice. A company that tracks these and fixes them looks like a company that will keep its buildings through a change of owner.

Many clients also require vendor registrations, security badges, background checks on crew members and current insurance certificates on file. A buyer will check that these are current, and for schools, medical buildings and government sites the paperwork can take time to redo for a new owner.

Records and what has to transfer

Plan on handing over business tax returns, monthly profit and loss statements, payroll registers, an aged receivables report and the contract list. Property managers can be slow payers, so a buyer reads the receivables carefully. Add the insurance file, which usually includes general liability, workers' compensation and a bond covering employee theft, along with the loss history for each. Then the equipment list: auto scrubbers, burnishers, extractors, backpack vacuums, carts and the vans. The supply vendor accounts and any chemical purchasing agreements follow.

Most cleaning companies sell as an asset deal, and the buyer takes the contracts through assignment. Some customers need to consent to that, and a few contracts allow the customer to leave if ownership changes. Read your agreements before listing so you know which clients need a call. Our post on asset sales and stock sales explains the difference and why it matters for the contracts you hold.

What sinks a sale, and how to prepare

Cleaning company sales fail in a few familiar ways. The largest account puts its contract out to bid during diligence. Crew members hear about the sale and a few leave. Payroll records show cash paid off the books and nobody can document it. The owner is the only person who handles complaints, so the buyer leaves.

A year of preparation helps a great deal. Reprice the accounts that lost money as wages rose. Put every account on a signed agreement with a renewal clause. Name a second person who can run the nightly routes and handle complaints. Write down how a new building is priced, staffed and started. Keep the payroll clean and the insurance current.

If you want to see how a buyer would look at your company, our page on selling a commercial cleaning company is a good place to start. At Business Advisors of America we begin with a valuation built from your own numbers, then prepare the materials a buyer and lender will ask for, and we screen buyers before anyone sees the company's name.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.